Agency spreads sluggish in reaction to supply; $3 billion issue from Fannie Mae on horizon

By Lisa Kerner

Charlotte, N.C., Jan. 11 - Agency spreads were weakened by supply on Monday, said a trader, who noted that supply got a boost from the Federal Farm Credit Banks Funding Co.

According to the trader, there was limited movement in agency spreads as the week began.

The two-year sector moved out half of a basis point, and the five-year sector was wider by 1 bp. The three-year sector was unchanged.

On the flip side, a lack of supply had the 10-year sector trading "like gold," said Michael Skinner, an agency trader with Wall Street Access.

He said the 10-year and out sectors were "a touch tighter" while spreads were wider in the front end.

Swaps outperformed spreads, one source said.

On Monday, FFCB priced a $1.4 billion Designated Bond through the Federal Farm Credit Banks Consolidated Systemwide Bond Program.

The issue will settle Friday, according to an FFCB news release.

Skinner said the bond came in at 33.5 bps to the three-year, in line with projections. It tightened 0.5 bp and then widened back out to 33.5.

Another trader noted a lack of secondary trading for the issue.

It was also heard that Fannie Mae will add to supply midweek with a benchmark-size security of at least $3 billion to be announced on Wednesday.

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